The Truth About Accelerators: Some Accelerate Success, Others Accelerate Failure

It wasn’t exactly the shining start that FounderFuel general manager Ian Jeffrey envisioned for one of the startup accelerator’s new companies.

It was Spring 2012 and his three-month intensive program for Inernet startups in Montreal had just begun its second full cohort. FounderFuel, like many other Canadian programs just like it, push-start companies with mentoring and a small injection of capital.

But in the program’s first week, it became evident at a pitching event that startup founder Mikael Cho and his team didn’t have anything close to a business. “The mentors were looking at me like, ‘what did we just do letting these guys into the program?’” said Jeffrey.

Fortunately, Cho and the group at Crew (formerly called Ooomf) excelled throughout the three-month program, eventually growing into a successful marketplace for creative professionals.

But not all accelerator programs are right for Canadian startups trying to become the next billion-dollar Internet company. And while tech media is constantly highlighting Canada’s roughly 20 different programs, mulling over the decision of joining an accelerator takes careful consideration.

This is particularly important within a startup culture that often views admittance into an accelerator as a status of sorts.

For companies starting up platforms that demand an immediate injection of cash, entering an accelerator is a smart tradeoff for a small equity stake (FounderFuel gives $50,000 for nine percent). They also provide companies with crucial introductions and networking, particularly helpful for those like Cho, who had only just moved to Montreal. “We met all these people in the span of three months that probably would have taken a year or two,” he said.

Accelerators are also right for teams that have committed to taking a large step forward, with founders who are comfortable with taking on a much greater amount of responsibility, both personal and financial. Not only are founders signing up to raise money, but “you’re signing up for the pressure,” said Cho. “You’ve now created an expectation that you should be growing way faster.”

For companies like Picatic, a custom event website that graduated Toronto’s Extreme Startups, an accelerator can serve as a team-builder as well. “The stress and the workload can push your team together and it can push it apart, and our team really came together.” said CEO Jayesh Parmar.

However, most accelerators are for-profit businesses backed by venture capital firms, with a mission to make returns on their investments. Not only do accelerators that take equity from companies now have a (small) say in how the company should be run, but they’ll encourage founders to make decisions that lead to an eventual return on investment.

These programs will often sell themselves on their vast networks of successful mentors and partners that can help the founders and their companies. But with so many “experts” coaching and encouraging founders, it can often lead to what Steven Lachance calls “mentor backlash”.

Lachance went through FounderFuel alongside Cho, but shortly thereafter he shuttered his ridesharing platform, Liverides. Nearly all the budget was spent on developing the platform with little users to show for it, before the cash ran out.

The Quebec City-based entrepreneur recalled how several mentors pulled him in different directions as to how he should lead the business. “They’re all convinced that they’re right,” he said. “What you stand for needs to be crystal clear and it needs to be communicated to mentors and investors from the start, otherwise you’ll zig-zag and run circles without getting anywhere.”

On the flip side, Lachance also said mentors can at times fall victim to groupthink, listening and agreeing with the loudest voice, right or wrong.

Cho said that an accelerator can become both hectic and distracting for an entrepreneur. Being the leader of a company in an accelerator demands a delicate mix of accepting advice while firmly defining priorities, whether it be product development, marketing or fund-raising. “It can be a little bit hard when you’re trying to figure out your priorities. There’s a lot of stuff happening, depending on which one you join, and for us it was hard to just focus on building product,” said Cho.

While Parmer emphasized how much his startup grew under the pressures of Extreme Startups, he was quick to point out that programs can tear teams apart . FounderFuel’s Jeffrey admitted that, “in every single cohort at least one cofounder has been fired.”

Even the methodologies through which accelerators are pushing their companies to raise more “follow-on” funding are being challenged. The past few years have seen a proliferation in both new accelerators in Canada as well as their own “Demo Day” celebrations, or glitzy graduation-like events where hundreds of investors are invited to watch the startups pitch their ideas in the hopes of investment. Some founders can glorify “vanity metrics,” or measurements that give an overly rosy view of the company.

Parmar warned that investors are getting savvier, and the “smoke and mirrors” show is becoming more apparent.

“There’s a lot of pressure after a Demo Day to go out there and have huge metrics,” he said. “But I’d rather take a strong relationship and a hot lead versus pitching to 500 people.”

For founders considering the journey, its crucial that they realize what the company’s needs and priorities are, as well as where they want to be in six months. After all, as Jeffrey said, these programs can accelerate the success or the failure of companies.

Joseph Czikk previously has written for the National Post, Montreal Gazette, Vancouver Sun, Regina Leader Post, Techvibes and BC Business Online. Joseph often goes crazy on twitter during NHL and NFL games.